Singapore: Malaysian state investor Khazanah plans to sell S$1.5 billion ($1.1 billion) in Islamic bonds or sukuk maturing in five and 10 years, sources involved in the debt deal said on Tuesday.
Bankers said Khazanah plans to use the funds to buy sharia-compliant assets as well as to refinance existing debt. The sale comes a week after Khazanah trumped India’s Fortis Healthcare in a takeover battle for Singapore’s Parkway Holdings in a deal that could cost the state firm S$3.5 billion.
This is the biggest sukuk in Singapore, where Islamic finance has been slow to take off because of Kuala Lumpur’s dominance in the fast-growing asset class and a lack of domestic investor interest in the city-state..
Khazanah is selling S$600 million in five-year sukuk at 90 basis points above the Singapore swap offered rate, or 2.615%, and S$900 million in 10-year sukuk at 120 basis points above the swap offered rate, or 3.725%, the sources told Reuters.
The sukuk is structured based on the wakala, or agency, concept, one source said.
DBS, Oversea-Chinese Banking Corp and CIMB are handling the deal, said the sources, who did not want to be identified because the offer has not been made public yet.
DBS and OCBC declined comment, while CIMB was not available. A Khazanah spokesman also declined comment.
One of the sources said demand from investors was “quite strong”.
“Khazanah is a sovereign credit equivalent,” said Karen Wan, senior manager for credit research and strategy at Malaysia’s AmBank. “This will help to build up the profile.”
To encourage the growth of Islamic finance, Singapore has removed double stamp duties and given similar tax treatment for sukuk investors.
Despite the incentives, Singapore saw only $123.6 million of sukuk coming to market last year, compared with $8 billion in Malaysia and $1.2 billion in Indonesia, its nearest Islamic banking competitors, Thomson Reuters data shows.
The Islamic Development Bank issued S$200 million of sukuk last year, which was then biggest Singapore dollar sukuk, the data shows. It was also the first Singapore dollar-denominated sukuk by a foreign issuer.
Earlier this year, Islamic Bank of Asia, which is more than half-owned by DBS, transferred 10 of its 65 staff to DBS and redeployed others to new job within the bank to shrink its business.